Customers of Bank of Cyprus use an ATM in Athens as the bank branch remains closed. / Thanassis Stavrakis, AP

by Menlaos Hadjicostis, Associated Press

by Menlaos Hadjicostis, Associated Press

NICOSIA, Cyprus (AP) - Big depositors at Cyprus' largest bank may be forced to accept losses of up to 60%, far more than initially estimated under the European rescue package to save the country from bankruptcy, officials said Saturday.

A Central Bank official and a senior Finance Ministry technocrat also said that Bank of Cyprus savers with over 100,000 euros ($128,000) will lose 37.5% of their value after being converted into bank shares. In a second raid on these accounts, bank customers could lose up to 22.5% more, depending on what experts determine the bank needs in capital reserves to restore it to financial health.

Cyprus agreed Monday to make depositors contribute to a financial rescue in order to secure $12.9 billion in loans from the eurozone and the IMF.

The savings converted to bank shares would theoretically allow depositors to eventually recover their losses. But the shares now hold little value and it's uncertain when - if ever - the shares will regain a value equal to the depositors' losses.

Europe has demanded that big depositors in the country's two largest banks - Bank of Cyprus and Laiki Bank - accept across-the-board losses in order to pay for Cyprus' 16 billion euro ($20.5 billion) bailout.

Cypriot officials had previously said that large savers at Laiki - which would be absorbed into the Bank of Cyprus - could lose as much as 80%. But they had said large accounts at the Bank of Cyprus would lose only 30% to 40%.

Analysts said Saturday that imposing bigger losses on Bank of Cyprus customers could further squeeze already crippled businesses as Cyprus tries to rebuild its banking sector in exchange for the international rescue package.

"Most of the damage will be done to businesses which had their money in the bank" to pay suppliers and employees, said University of Cyprus economics Professor Sofronis Clerides. "There's quite a difference between a 30% loss and a 60% loss."

With businesses shrinking, the country could be dragged down into an even deeper recession, he said.

There's also concern that large depositors - including many wealthy Russians - will take their money and flee the country with their money once capital restrictions that Cypriot authorities have imposed on bank transactions are lifted in about a month. Cypriot authorities had imposed the restrictions in early March to prevent a run on deposits at the nation's banks.

Cyprus agreed on Monday to make bank depositors with accounts over 100,000 euros contribute to the financial rescue in order to secure 10 billion euros ($12.9 billion) in loans from the eurozone and the International Monetary Fund. Cyprus needed to scrounge up 5.8 billion euros ($7.4 billion) on its own to clinch the larger package, and banks had remained shut for nearly two weeks until politicians hammered out a deal.

The banks reopened Thursday. But fearing savers would rush to pull their money out in mass, Cypriot authorities imposed a raft of restrictions, including daily withdrawal limits of 300 euros ($384) for individuals and 5,000 euros for businesses - the first so-called capital controls that any country has applied in the eurozone's 14-year history.

Under the terms of the bailout deal, the country' second largest bank, Laiki - which sustained the most damage from bad Greek debt and loans - is to be split up, with its nonperforming loans and toxic assets going into a "bad bank." The healthy loans and other assets will be absorbed into the Bank of Cyprus.

On Saturday, economist Stelios Platis dismissed the rescue plan as "completely mistaken" and criticized Cyprus' euro area partners for insisting that that Laiki's problems be foisted on the Bank of Cyprus.

Clerides said it appears that some euro area countries, such as Germany and Finland, wanted to see the end of Cyprus as an international financial services center, while others, such as eurogroup chief Jeroen Dijsselbloem, wanted to use the country as an "guinea pig" to send the message that European taxpayers would no longer shoulder the burden of bailing out problem banks.

But German Finance Minister Wolfgang Schaeuble challenged that notion, insisting in an interview with the Bild daily published Saturday that "Cyprus is and remains a special, isolated case" and doesn't point the way for future European rescue programs.

AP business correspondent Geir Moulson contributed from Berlin.

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